Are supply chains really failing?

The figures are painful: last year the UK saw only 860,000 car models roll off production lines, the lowest level in 65 years, according to a recent note by Hargreaves Lansdown.

The analyst noted that this is another example showing how the ongoing supply chain crisis is holding back manufacturing growth, as although new chip manufacturing plants are being built around the world, there is no easy fix to the problem, as most will take many years to become fully operational.

The problem is not only confined to the automotive sector, however. According to risk management specialist Russell Group, the current port congestion at Shanghai is costing an estimated $4.5 billion a week in lost trade, opening the door to both supply chain and business interruption risks.

Further analysis by the group showed that $635 million dollars’ worth of trade from Shanghai to the United States is currently under threat, with vessels are over a week behind schedule due to large pent-up demand driven by lockdowns in other major Chinese ports including Ningbo and Tianjin, caused by a surge in COVID cases in those cities.

Worryingly, it adds that is not just exports that are under threat but also imports. More than $559 million dollars’ worth of ICBs that are normally imported into Shanghai are being delayed too.

The reality is that travel restrictions and shipping bottlenecks have disrupted ‘just in time’ supply chains designed to keep company inventories to a minimum.

Looking for a way out of the current supply chain crisis is far from simple, and could be even harder than we thought if we look for the underlying structural issues here.

Indeed, some observers suggest that picturing this as a problem driven by a combination of COVID and relates travel restrictions is to miss the bigger picture.

According to Zachary Rogers, assistant professor of operations and supply chain management at Colorado State University, the two underlying major factors behind the clogged ports are a record increase in consumer spending and a burgeoning e-commerce industry.

“We’re not actually seeing that supply chains are failing,” Rogers said in a recent lecture at Arizona State University. “I think, in many ways, we are seeing sort of a heroic effort in the face of this unprecedented demand that we are dealing with right now.”

In which case, we are going to have to do some serious logistical thinking if we are to cope with the increasing strain on physical supply caused by digital demand: COVID or no COVID.

Marcus Alcock,

Editor, Emerging Risks

Follow us on twitter: @risksEmerging

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